Blog post by Dana Harris, Partner, Red Javelin Communications
At the LearnLaunch Across Boundaries Conference 2016 in January, a packed crowd explored trends in funding for early-stage through Series B edtech ventures. The panel session was moderated by Christopher Mirable, Co-Managing Director at Launchpad Venture Group, and included panelists Amit Patel of Owl Ventures, Martin Keck, Principal at Needham & Company, and Alan Maguire, Founding Partner at Vesari.
Here are some key takeaways from a lively discussion:
Funding in edtech is healthy. Venture capital investment in the US has doubled, and there are large deals getting done. Sources of capital include: (a) Accelerators and incubators such as LearnLaunch, (b) Seed/angel funding, (c) Series A/B, and (d) Foundations (Bill & Melinda Gates Foundation, etc.)
Edtech entrepreneurs need to educate investors. It is hard sometimes for investors to stay up to speed with the nuances in edtech. Edtech entrepreneurs should make it their job to educate investors. Generalist investors find it especially challenging to understand how edtech businesses can achieve scale. Help them better understand your business, buying patterns, targeted audience, and the exit landscape. Help them understand your early stage strategies. Make sure your pitch includes relevant statistics needed to size your market opportunity.
B2C, B2B or Can I Do Both? It’s difficult to pursue B2C and B2B at the same time. The B2C model is challenging, but many companies with this model are funded by generalists. Also, there’s not much interest in Europe around B2C edtech models as most K-12 is state-funded.
How does a company’s market focus (K-12, higher ed, adult ed) affect its sources of capital and dictate more or less success? Every investor is focused on a specific area of edtech and only in a few cases they address more than one sub-sector (for example, Owl Ventures is focused on K-12). Entrepreneurs need to know the focus of the VC firm and its partners before approaching them.
How does a company’s stage affect its likely sources of capital? The panel indicated they are increasingly seeing a combination of edtech specialists and generalists in Series A/B investments, which may be a template for success in the future. Angels and accelerator programs are filling in for most seed-level investments.
Should companies focus on potential “exits” when making investor decisions? Panelists suggested that strategic investors can be a blessing or a curse down the road. They encouraged entrepreneurs to get advice when considering the “exit” option as it can get muddy or it can be a tremendous advantage as a partnership.
Customer revenue trumps all. Investors are looking for real revenue, real paying customers, real money. They want commercial validation. Panelists emphasized that, in fact, customer revenue can be the cheapest funding that you can get.